IRS Proposes 20% Staff Cuts but Boosts Phone Support
The IRS has submitted its 2026 budget request, which includes a proposed 20% reduction in employees but an increase in phone-based taxpayer assistance. This budget reflects a strategic pivot toward modernizing communication channels while managing resource constraints. The IRS aims to maintain service levels despite a leaner workforce by enhancing technology and direct phone support.
Why It Matters:
The reduction in IRS staffing could mean longer wait times for case resolutions and slower correspondence. However, the boost in phone support might offer more immediate answers for straightforward issues. Professionals must balance these operational shifts to continue delivering timely and accurate advice to clients.
Actionable Steps:
- Prepare clients for potential delays in IRS correspondence.
- Leverage the increased phone support for simple IRS inquiries.
- Optimize internal workflows to compensate for slower IRS processing.
- Ensure deadlines and filings are managed proactively.
Senate Budget Bill Includes Key Tax Provisions
The Senate Finance Committee has released its version of the federal budget bill, which includes several notable tax provisions affecting individuals and businesses. This legislative blueprint also outlines policy priorities that may impact enforcement, deductions, and credits moving forward. The bill provides insights into how Congress intends to balance fiscal challenges with taxpayer relief efforts.
Why It Matters:
Tax professionals must stay informed about evolving legislative changes that could influence client tax planning and compliance. The budget bill signals potential shifts in tax policy, enforcement focus, and deductions that could affect both individual and corporate clients.
Actionable Steps:
- Review recent IRS enforcement trends.
- Consider how new leadership might shift focus areas.
- Engage with clients proactively.
- Be ready to adjust tax planning strategies accordingly.
House Tax Bill Could Increase Deficit by $2.8T
The Congressional Budget Office (CBO) has released a dynamic analysis of the House’s proposed tax-and-spending legislation, estimating that it would increase the federal deficit by $2.8 trillion over the next 10 years. While the bill aims to extend several provisions of the 2017 Tax Cuts and Jobs Act (TCJA), including tax breaks for individuals and businesses, the CBO found that any economic growth benefits would be outweighed by the increased cost of servicing the national debt. The analysis also notes that making these tax cuts permanent could significantly reduce federal revenue and strain public programs.
Why It Matters:
This proposal, if passed, would have wide-ranging implications for tax planning and compliance. Extended TCJA provisions could affect everything from income brackets to business expensing rules, while rising deficits may lead to future tax increases or spending cuts. Understanding the legislative outlook is key to helping clients make strategic financial decisions amid an uncertain fiscal environment.
Actionable Steps:
- Start scenario planning now.
- Stay updated on legislative developments.
- Communicate with clients proactively, especially those with pass-through businesses or in high-debt sectors.
IRS Grants Transitional Relief for Certain Digital Asset Brokers
The Internal Revenue Service (IRS) has issued Notice 2024-56, providing transitional relief to certain digital asset brokers. Under this notice, brokers won’t face penalties in 2025 for missing or incorrect Forms 1099-DA or for withholding backup taxes, as long as they are making a good-faith effort to comply, including using Taxpayer Identification Number (TIN) matching. This grace period extends to some transactions into 2026.
Why It Matters:
This gives crypto platforms and tax professionals more time to prepare for complex new reporting rules without the fear of immediate penalties. As the IRS tightens regulations around digital assets, this relief is a valuable window to upgrade systems and processes.
Actionable Steps:
- Ensure your crypto-reporting tools are able to handle 1099-DA reporting.
- Start to incorporate TIN matching with your reporting.
- Educate your clients who deal in crypto.